Saturday, February 17, 2007

Last June, Google launched a service offering a one-click method of paying for purchases that minimizes the risk of credit card information being stolen off a Web site.

The service, called Checkout, links to credit card accounts, but is more secure and faster than, say, typing in 16 digits off a card.

Checkout is used on 100 of the top 500 online shopping sites, including those of Toys R Us, Linens N Things and Buy.com. But the new service faces an uphill battle fighting its more-established rival PayPal, a similar payment service owned by eBay.

Google is marketing the service aggressively, trying to lure shoppers to Checkout. It offered discounts such as $10 off initial purchases during the holidays and around Valentine's Day. To attract more merchants to sign up, it is also waiving the normal 2 percent fee charged on each sale through the end of the year -- freebies have cost Google about 1 percent of its revenue, or $32 million during the last three months of last year.

Consumers stand to benefit from the rivalry with more options for making online purchases. And for PayPal, what's at stake is its near-ownership of the online payment market, a lucrative business that contributed 25 percent of eBay's revenues on $11 billion worth of transactions during the fourth quarter. Nine-year-old PayPal boasts 133 million account holders. Checkout handles only one transaction for every 70 that PayPal does, according to Hitwise, a firm that measures online traffic. And neither eBay, the largest auctioneer, nor Amazon, the biggest retailer, allows shoppers to use Checkout on their sites.

EBay said it doesn't allow use of Checkout on its sites because it lacks a proven track record of security. PayPal differs from Checkout in that it can also be used to draw funds from a bank account, so people can use PayPal to make payments between individuals the way they use checks. Since eBay bought PayPal in 2002, it has become a lucrative business for the auctioneer.

The tension between eBay and Google highlights the complicated relationships among Internet companies looking to expand their audience for customers. Web-based companies frequently advertise with one another, but also offer a vast array of services -- everything from shopping to Internet calling -- that compete with each other. Until Google entered eBay's turf, the two were primarily customers, not competitors.

Google focused almost entirely on products that would boost its online-advertising revenue. The two companies have a multi-year advertising deal where eBay's advertisements appear alongside Google's search results and Google places ads on eBay's overseas Web sites. EBay makes money on Web-based sales and auctions as well as through the 2-to-3 percent fees it collects from every PayPal transaction.

"In this day and age, especially in this industry, it's getting harder and harder to put labels on other companies . . . like competitor and partner," said eBay spokesman Hani Durzy, explaining the firm's relationship with Google. "Sometimes we look at them as competitors and sometimes we look at them as partners. Both are equally legitimate, depending on the situation."

Some analysts say Google's move into Checkout is part of the company's bigger push into e-commerce, a move that could further encroach on eBay's market. Google has a comparison-shopping site called Froogle, for example, which competes with eBay's Shopping.com. It also has a service called Google Base, an online classifieds site similar to eBay's Craigslist.

Other analysts, like Charlene Li with Forrester Research, said Checkout is less about competing for e-commerce dollars than collecting more data about how online shoppers respond to advertisements. According to Google, 37 percent of online purchases begin with an Internet search; information that proves a shopper closed a sale after clicking on an ad it will help the company's advertising business, she said.

For merchants who sell their wares on eBay, Checkout's biggest virtue is that it is free, and some are clamoring for an alternative to PayPal. Checkout initially faced some problems that resulted in customer and merchant complaints and delays in processing orders, but Google said it has since made improvements. Now on message boards, some merchants are petitioning eBay to allow Checkout on the site.

"We want a grass-roots effort to let eBay know this is something the sellers want, and what the buyers want," said John Lawson, who started the online petition last month and garnered 287 signatures in the first three weeks.

Lawson does a $25,000-a-month business selling "bling" necklaces, do-rags and other urban fashion accessories on eBay, and said he wanted to take advantage of Checkout's free service, so he set it up on his company's own site, http://www.3rdpoweroutlet.com.

EBay spokesman Durzi said Checkout does not meet the company's standards, noting that eBay accepts other online payments besides PayPal. "It's our responsibility to encourage payment systems that have a historical track record and desire by community to use it," Durzi said. "Google Checkout has very little historical track record . . .we see a very low level of interest."

Google disagrees and said Checkout is secure and customers are satisfied. "We'd be happy to work with eBay and have it accepted on eBay," said Benjamin Ling, product manager for Checkout.